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The Arbitration Minute - May 2017

Bird & Bird’s French Dispute Resolution team is pleased to present the May 2017 issue of The Arbitration Minute:

Is third party funding permitted in France?

Is third party funding permitted in France?

Third party funding is the funding by a third party of all the cost related to an arbitration. In return, the third party funder takes a percentage of the proceeds in case of success. No payment is due if the funded party loses the case. Third party funding differs from insurance in that parties seek third party funders once the dispute has arisen, whereas insurance is concluded before a dispute arises. Over the last couple of years, third party funders have become more and more active, including in France. This raises the question of whether third party funding is permitted in France.

The answer is yes. It is to be noted that the involvement of a third party funder in an arbitration does, however, lead to a number of ethical questions, which are addressed by a recent resolution of the Paris Bar Council, released at the end of April 2017.

One such question concerns legal privilege, or professional secrecy. In France exchanges between a lawyer and a client are protected. This protection does, however, not apply in the relationship between a client and its third party funder. As a result, the production of all communications and documents exchanged between the client and its third party funder could be requested by the adverse party before a French court. To limit this risk, the resolution states that the lawyer should not communicate any information in relation t the case to the third party funder. Alternatively, a client could consider communicating with the third party funder only through their respective lawyers.

Another question is whether the presence of a third party funder should be disclosed during the arbitration proceedings. The resolution recommends that French lawyers encourage their clients to reveal the existence of funding to the arbitral tribunal. It does, however, not require a disclosure. So what are the pros and cons of such disclosure?

Pros: First, the presence of a third party funder is usually a sign that the case is strong on the merits. Second, disclosing the presence of the third party funder prevents any hidden conflict of interests between the latter and the members of the arbitral tribunal thereby avoiding any potential obstacles to the enforcement of the arbitral award.

Cons: Disclosure may result in the adverse party filing an application for security for costs, which in and of itself may lead to an increase of the arbitration costs.

All in all, the resolution of the Paris Bar Council reflects a positive attitude towards third party funding as it facilitates access to justice in international arbitration.

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